New Monetarist Economics: Methods

Williamson, Stephen D.; Wright, Randall

doi:10.20955/r.92.265-302

Cited by 53 publications

(34 citation statements)

References 164 publications

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“…For recent overviews of NM models Williamson & Wright (2010. 38 As a consequence, NM models realise that banks perform a socially beneficial function in transforming illiquid assets into liquid liabilities and helping to reduce asymmetric information problems and transaction costs.…”

Section: New Monetarist Economicsmentioning

confidence: 99%

“…Williamson & Wright (2010) show that in this environment the price level increases with the number of consumers.…”

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confidence: 90%

“…The simple environment used above is not capable of doing so since every trade involves a one-for-one swap. The following more advanced model is presented in Williamson & Wright (2010) and refers to the approaches introduced by Shi (1995) and Trejos & Wright (1995). The fundamental difference between this approach and the simple model above is that goods are now divisible and every producer has to decide about the quantity x he produces to sell it to an agent who is endowed with money (in the simplest case, direct barter is -by assumption -excluded).…”

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confidence: 99%

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Money In Modern Macro Models: A Review of the Arguments

Seitz

Schmidt

2014

J. Rev. Global Econ.

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This paper provides an overview of the role of money in modern macro models. In particular, we are focussing on New Keynesian and New Monetarist models to investigate their main findings and most significant shortcomings in considering money properly. As a further step, we ask about the role of financial intermediaries in this respect. In dealing with these issues, we distinguish between narrow and broad monetary aggregates. We conclude that for theoretical as well as practical reasons a periodic review of the definition of monetary aggregates is advisable. Despite the criticism brought forward by the recent New Keynesian literature, we argue that keeping an eye on money is important to monetary policy decision-makers in order to safeguard price stability as well as, as a side-benefit, ensure financial market stability. In a nutshell: money still matters.

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Section: New Monetarist Economicsmentioning

confidence: 99%

“…Williamson & Wright (2010) show that in this environment the price level increases with the number of consumers.…”

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confidence: 90%

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confidence: 99%

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Money In Modern Macro Models: A Review of the Arguments

Seitz

Schmidt

2014

J. Rev. Global Econ.

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“…The households' problem is (15). 8 The FOCs are in (16), so the model still reduces to the difference equation (17).…”

Section: Proof Of Lemma 1 See Appendixmentioning

confidence: 99%

Two Monetary Models with Alternating Markets

Camera

Chien

2013

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Non-Technical SummaryWhat is the best approach to modeling money? This question is one of those that economists have struggled with for a while, and is not yet settled.In this paper, we juxtapose two microfounded monetary models' equilibrium predictions and their quantitative implications for the welfare cost of inflation: the model in Lagos and Wright (2005) (hereafter LW) and the cash-in-advance model in tradition of Lucas (1980Lucas ( , 1984. Proponents of the LW model view it as being theoretically more appealing than reduced-form models such as cashin-advance, and have argued that the model can generate significantly different quantitative results; e.g., the welfare costs of inflation are higher than in reduced-form models.The two models exhibit key similarities. In both models agents synchronously alternate between a centralized market and a decentralized market; consumption utility depends on the market in which the purchase is settled; adjustments of money balances are made before a random shock is observed. A key difference is the use of Nash bargaining in one model, but not the other: in the LW model, bargaining determines prices of cash trades, which induces a price distortion depending on the seller's bargaining power. Do these theoretical platforms predict different equilibrium allocations? Are these models generally incapable of producing similar quantitative results? What model features are responsible for possible disparities?Once the two frameworks are placed on equal footing, in terms of preferences, technologies, and shocks, we find that the equations characterizing stationary equilibrium in the LW model when sellers have no bargaining power coincide with the equations that characterize stationary competitive equilibrium in the cash-in-advance model. This also holds if sellers do have some bargaining power, when the price distortion from Nash bargaining is replicated in the other model via a tax on cash revenues. Such correspondence between equations immediately extends outside of steady-state, if sellers have no bargaining power and workers have isoelastic preferences; otherwise, the equations do not generally correspond. A quantitative exercise demonstrates that the welfare costs of inflation in the cash-in-advance model match those in the LW model.The message is that differences in the models' main equations reduce to differences in the pricing mechanism assumed to govern those transactions that must be se...

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“…3 See, e.g., Lucas and Stokey, 1987;Ireland, 1996;Mankiw and Reis, 2002;and Woodford, 2003. For a comprehensive literature review on recent development in monetary theories, see Williamson and Wright (2008). that technology shocks have no e¤ect on the equilibrium distribution of income over time; hence, the median individual's dynamic behaviors are the same as the aggregate dynamics.…”

Section: Introductionmentioning

confidence: 99%